PAGE 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended October 2, 1994
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ............ to ...............
Commission File Number 1-2833
RAYTHEON COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-1760395
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
141 SPRING STREET, LEXINGTON, MASSACHUSETTS 02173
(Address of Principal Executive Offices) (Zip Code)
(617) 862-6600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes.x.. No...
NUMBER OF COMMON SHARES OUTSTANDING AT OCTOBER 2, 1994: 131,575,000 <PAGE>
PAGE 2
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
BALANCE SHEETS (Unaudited)
Oct. 2, 1994 Dec. 31, 1993
------------ -------------
(In thousands)
ASSETS
Cash and marketable securities $ 248,901 $ 190,231
Accounts receivable 837,972 727,713
Contracts in process, less progress
payments 2,064,440 2,024,145
Inventories 1,627,042 1,500,393
Prepaid expenses 199,034 166,761
---------- ----------
Total current assets 4,977,389 4,609,243
Property, plant and equipment, net 1,379,817 1,422,086
Other assets 853,568 1,226,383
---------- ----------
$7,210,774 $7,257,712
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes and accounts payable $1,307,233 $1,688,363
Advance payments, less contracts in
process 595,472 376,097
Accrued expenses 870,628 731,848
Federal and foreign income taxes,
including deferred 90,233 113,472
---------- ----------
Total current liabilities 2,863,566 2,909,780
Non-current pension liability 25,696 25,696
Long-term debt 21,870 24,376
Stockholders' equity 4,299,642 4,297,860
---------- ----------
$7,210,774 $7,257,712
========== ==========
The accompanying notes are an integral part of the financial statements.<PAGE>
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<TABLE>
RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
STATEMENTS OF INCOME (Unaudited)
Three Months Ended Nine Months Ended
Oct. 2, 1994 Oct. 3, 1993 Oct. 2, 1994 Oct. 3, 1993
------------ ------------ ----------- ------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Net sales $2,442,633 $2,222,732 $7,284,097 $6,684,559
---------- ---------- ---------- ----------
Cost of sales 1,876,059 1,721,862 5,621,335 5,195,533
Administrative and selling expenses 225,200 213,191 665,892 605,813
Research and development expenses 68,238 64,674 201,445 219,393
Restructuring provision - - 249,751 -
---------- ---------- ---------- ----------
Total operating expenses 2,169,497 1,999,727 6,738,423 6,020,739
---------- ---------- ---------- ----------
Operating income 273,136 223,005 545,674 663,820
---------- ---------- ---------- ----------
Interest expense 9,941 8,802 33,313 22,541
Interest and dividend income (8,707) (14,480) (38,450) (41,896)
Other (income) expense, net (15,542) (35,883) (34,602) (85,267)
---------- ---------- ---------- ----------
Non-operating (income) expense, net (14,308) (41,561) (39,739) (104,622)
---------- ---------- ---------- ----------
Income before taxes 287,444 264,566 585,413 768,442
Federal and foreign income taxes 95,500 93,771 194,274 260,852
---------- ---------- ---------- ----------
Net income $ 191,944 $ 170,795 $ 391,139 $ 507,590
=========== =========== ========== ==========
Earnings per common share $1.45 $1.26 $2.92 $3.74
Average number of common shares
outstanding during period 132,384 135,661 133,851 135,672
Dividends declared per common share $.375 $.35 $1.10 $1.05
The accompanying notes are an integral part of the financial statements.
/TABLE
<PAGE>
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended
Oct. 2, 1994 Oct. 3, 1993
------------ ------------
(In thousands)
Cash flows from operating activities:
Net income $391,139 $507,590
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 203,251 206,784
Restructuring provision 249,751 -
Sale of commuter airlines
long-term receivables 302,800 -
Other adjustments, net (255,015) (302,728)
-------- --------
Net cash provided by operating activities 891,926 411,646
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (194,663) (188,600)
Payments for purchase of Corporate Jets - (372,000)
All other, net 9,672 46,557
-------- --------
Net cash used in investing activities (184,991) (514,043)
-------- --------
Cash flows from financing activities:
Change in short-term debt (256,404) 257,868
Dividends (146,412) (142,487)
Purchase of treasury shares (277,928) (68,432)
Proceeds under common stock plans 30,993 49,798
All other, net (2,506) 516
-------- --------
Net cash used in financing activities (652,257) 97,263
-------- --------
Effect of foreign exchange rates on cash 3,990 160
-------- --------
Net increase (decrease) in cash and
cash equivalents 58,668 (4,974)
Cash and cash equivalents at beginning
of year 190,121 88,730
-------- --------
Cash and cash equivalents at end of
third quarter $248,789 $83,756
======== ========
The accompanying notes are an integral part of the financial statements.<PAGE>
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RAYTHEON COMPANY AND SUBSIDIARIES CONSOLIDATED
----------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) Details of certain balance sheet accounts are as follows:
Oct. 2, 1994 Dec. 31, 1993
------------ -------------
(In thousands)
Cash and marketable securities
Cash and cash equivalents $ 248,789 $ 190,121
Marketable securities 112 110
---------- ----------
Total cash and marketable securities $ 248,901 $ 190,231
========== ==========
Inventories
Finished goods $ 659,906 $ 659,436
Work in process 787,368 713,075
Materials and purchased parts 363,108 302,404
Excess of current cost over LIFO values (183,340) (174,522)
---------- ----------
Total inventories $1,627,042 $1,500,393
========== ==========
Property, plant and equipment
At cost $3,720,784 $3,590,333
Accumulated depreciation
and amortization (2,340,967) (2,168,247)
---------- ----------
Net property, plant and equipment $1,379,817 $1,422,086
========== ==========
Stockholders' equity
Preferred stock, no outstanding shares $ - $ -
Common stock, outstanding shares 131,575 135,214
Additional paid-in capital 347,665 328,489
Equity adjustments 1,890 (2,100)
Retained earnings 3,818,512 3,836,257
---------- ----------
Total stockholders' equity $4,299,642 $4,297,860
========== ==========
(2) The company recorded in the first quarter of 1994 a restructuring
provision of $249.8 million. The restructuring was driven by the
significant reductions in defense budgets and increasing
commercial competition. Approximately 65% of the restructuring
costs are attributable to Raytheon s defense business and the
remainder to its commercial businesses. The company-wide plan
will result in personnel reductions of approximately 4400 people
including both salaried and bargaining unit employees located in
Massachusetts and other states and in foreign locations. The
restructuring provision of $249.8 million includes $64 million of
non-cash items. Cash flow expenditures, net of tax recovery of
$87 million, are estimated at $67 million in 1994 and $32 million<PAGE>
PAGE 6
in 1995 and will be funded by the company's cash flow from
operating activities. The restructuring plan, when fully
implemented, will result in annual savings of $280 million, which
will help maintain the company's competitive position in a
shrinking defense market and improve productivity in its
commercial businesses. Through the third quarter of 1994 $56.4
million of restructuring costs have been incurred; 2600 employees
have been notified of termination, of which 1600 have actually
been terminated.
(3) The information furnished has been prepared from the accounts
without audit. In the opinion of management, the information
reflects all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of the financial statements for
the interim periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Third Quarter 1994 versus 1993
------------------------------
Raytheon Company earned $1.45 per share in the third quarter 1994, a 15.1%
increase over the $1.26 per share earned in the third quarter of 1993.
Net income in the third quarter 1994 was $191.9 million, a 12.4% increase
over the $170.8 million in the third quarter of 1993. Third quarter sales
were $2.443 billion, a 9.9% increase over the $2.223 billion in sales in
the same period last year.
The record results were driven by record third quarter profits and sales
at Raytheon s commercial businesses: engineering and construction,
aircraft and appliances. These results were achieved despite lower sales
and profits in the government business due to reduced defense spending.
The balance sheet continued strong; total debt at the end of the quarter
was $639 million, the lowest debt level since the end of the first quarter
of 1988, and debt as a percentage of equity was 14.9%.
During the quarter, a team headed by Raytheon won a competition to provide
the government of Brazil with a surveillance system, called SIVAM, to help
protect the environment; sustain economic development; and support proper
land use, conservation, and development in the Amazon region. The project
is valued at more than $1 billion.
The Engineering and Construction (Formerly the "Energy and Environmental"
segment, renamed to describe more accurately the business conducted by
such segment. There has been no change in the business or operations of
the segment.) segment reported record third quarter sales and profits led
by the performance of Raytheon Engineers and Constructors and by the
contributions of its Ebasco division which was acquired in December 1993.
During the quarter the group received a $364 million contract for a
turnkey project for the modernization and expansion of the Acme Steel
Company s plant in Riverdale, IL.<PAGE>
PAGE 7
The Aircraft Products segment reported record third quarter sales and
profits based on strong operating income performance.
The Major Appliance segment reported record third quarter sales and
profits based on increased shipments of cooking, heating and air
conditioning, refrigerator and laundry products.
The Electronics segment reported lower sales and profits in the quarter
due to reduced defense spending worldwide.
Sales to the U. S. government were $923 million in the third quarter of
1994, a decrease of $97 million or 9.5% from the comparable quarter of
1993. U. S. government sales were 37.7% of consolidated third quarter net
sales in 1994 compared with 45.9% in 1993. Commercial sales to U. S.
customers increased to $998 million or 40.9% of consolidated sales from
the $801 million or 36.0% reported in 1993. Sales to customers outside
the United States were $522 million or 21.4% of consolidated versus $402
million or 18.1% reported in 1993.
Third quarter operating income was $273.1 million or 11.2% of sales in
1994 versus $223.0 million or 10.0% of sales in 1993. Operating income
for 1994 was 22.5% above 1993 due to strong improvements in operating
income in the Engineering and Construction, Aircraft Products and Major
Appliances segments.
Non-operating income (net) was $14.3 million in 1994 versus $41.6 million
in 1993. The decrease is due to a 1993 gain realized on the partial sale
of stock previously held as an investment, lower license fee income on
foreign missile contracts and lower interest income earned on long-term
receivables.
The 1994 effective tax rate of 33.2% reflects the statutory tax rate of
35% reduced by foreign tax credits.
For reasons discussed above, net income increased $21.1 million or 12.4%
to $191.9 million from the $170.8 million reported for the third quarter
of 1993.
Earnings per common share increased 15.1% to $1.45 for the third quarter
of 1994 from $1.26 for the third quarter of 1993. The average number of
common shares outstanding during the third quarter of 1994 was 132.4
million versus 135.7 million in 1993. During the quarter outstanding
shares were reduced by 1.7 million as the result of the company's purchase
of outstanding shares at a cost of $107.3 million, partially offset by
145,000 shares issued upon the exercise of employee stock options.
Nine Months 1994 versus 1993
----------------------------
Consolidated net sales increased 9.0% to $7.284 billion in 1994 from
$6.685 billion in 1993. Sales increased in the Engineering and
Construction, Aircraft Products and Major Appliances segments and
decreased in the Electronics segment.<PAGE>
PAGE 8
Sales to the U. S. government were $2.991 billion in 1994 versus $3.392
billion in 1993 and were 41.1% of consolidated net sales versus 50.7% in
1993. Sales to customers outside the United States were $1.335 billion or
18.3% of consolidated net sales in 1994 versus $1.129 billion or 16.9% of
consolidated net sales in 1993. Commercial sales to U.S. customers were
$2.958 billion or 40.6% of consolidated net sales in 1994 versus $2.164
billion or 32.4% of sales in 1993.
Operating income, excluding the effect of the restructuring provision
recorded in the first quarter of 1994, was $795.4 million or 10.9% of
sales versus $663.8 million or 9.9% of sales in 1993. The results for
1994, excluding the effect of the restructuring provision, were 19.8%
above 1993 due to strong improvements in operating earnings in the
Engineering and Construction, Aircraft Products and Major Appliance
segments. Operating income after the restructuring provision was $545.7
million or 7.5% of sales.
The company recorded in the first quarter of 1994 a restructuring
provision of $249.8 million. The restructuring was driven by the
significant reductions in defense budgets and increasing commercial
competition. Approximately 65% of the restructuring costs are
attributable to Raytheon s defense business and the remainder to its
commercial businesses. The company-wide plan will result in personnel
reductions of approximately 4400 people including both salaried and
bargaining unit employees located in Massachusetts and other states and in
foreign locations. The restructuring provision of $249.8 million includes
$64 million of non-cash items. Cash flow expenditures, net of tax
recovery of $87 million, are estimated at $67 million in 1994 and $32
million in 1995 and will be funded by the company's cash flow from
operating activities. The restructuring plan, when fully implemented,
will result in annual savings of $280 million, which will help maintain
the company's competitive position in a shrinking defense market and
improve productivity in its commercial businesses. Through the third
quarter of 1994 $56.4 million of restructuring costs have been incurred;
2600 employees have been notified of termination, of which 1600 have
actually been terminated.
Non-operating income (net) was $39.7 million in 1994 versus $104.6 million
in 1993. The decrease is due to 1993 gains on the sale of stock held as
investments, lower 1994 license fee income on foreign missile contracts
and higher 1994 interest expense.
The 1994 effective tax rate of 33.2% reflects the statutory rate of 35%
reduced by foreign tax credits.
For reasons discussed above, income before the restructuring provision
increased $45.9 million or 9.0% to $553.5 million from the $507.6 million
reported in the first nine months of 1993. Net income after the
restructuring provision was $391.1 million.
Earnings per common share before the restructuring provision increased
10.4% to $4.13 from $3.74 for the first nine months of 1993. Earnings per<PAGE>
PAGE 9
common share after the restructuring provision were $2.92 for the first
nine months of 1994. The average number of common shares outstanding was
133.9 million for the first nine months of 1994 versus 135.7 million for
the comparable 1993 period. During the first nine months of 1994
outstanding shares were reduced by 4.3 million shares as a result of the
company's purchase of outstanding shares at a cost of $277.9 million,
partially offset by 739,000 shares issued upon the exercise of employee
stock options.
On February 23, 1994, the Board of Directors authorized the repurchase of
up to 12 million shares of the company's common stock. The company will
repurchase shares in the open market from time to time as conditions may
warrant.
The book value of the common shares outstanding at the end of the period
was $32.68 as compared with $31.79 at December 31, 1993 and $30.90 at
October 3, 1993.
Backlog consisted of the following at:
Oct. 2 Dec. 31, Oct. 3
1994 1993 1993
------- --------- -------
(In millions)
Electronics $4,389 $4,817 $4,711
Aircraft Products 860 1,082 1,006
Engineering and Construction 1,594 1,824 688
Major Appliance 43 33 41
------ ------ ------
Total Backlog $6,886 $7,756 $6,446
U.S. government funded
backlog included above $3,541 $4,519 $4,213
Total debt was $639 million at October 2, 1994 as compared with $898
million at December 31, 1993 and $989 million at October 3, 1993. Debt as
a percentage of equity was 14.9% at October 2, 1994 as compared with 20.9%
at December 31, 1993 and 23.6% at October 3, 1993. The company believes
that the cash flow from operations will be sufficient to meet the normal
funding requirements of the company in 1994. Lines of credit with certain
commercial banks exist as a standby facility to support the commercial
paper issued by the company. These lines of credit were $850 million at
October 2, 1994. There have been no borrowings under these lines of
credit.
Capital expenditures were $194.7 million for the first nine months of 1994
as compared with $188.6 million for the first nine months of 1993.
During the first nine months of 1994 cash flows from operating activities
provided $891.9 million, as compared to $411.6 million provided by
operating activities during the first nine months of 1993. The cash flow
from operations was increased during 1994 by the sale of $302.8 million of<PAGE>
PAGE 10
commuter airline receivables to a bank syndicate. The $891.9 million of
cash generated by operating activities in 1994 was used principally to
fund additions to property, plant and equipment of $194.7 million, pay
dividends of $146.4 million, purchase treasury shares of $277.9 million
and to reduce short-term debt by $256.4 million.
Dividends declared to stockholders during the first nine months of 1994
were $1.10 per share versus $1.05 per share in 1993. Raytheon's board of
directors declared a second quarter dividend of 37.5 cents per share - an
increase of 2.5 cents, or 7% over the prior quarter's dividend.
Total employment at October 2, 1994 was 59,300, as compared with 63,800 at
December 31, 1993 and 61,000 at October 3, 1993.
A tender offer was successfully completed after the close of the third
quarter for Xyplex, Inc. This acquisition is an important step in
Raytheon's growth strategy to expand its existing communication business
and gives it a strategic entry into the fast growing data communications
industry. Also, on November 4, 1994 Raytheon purchased the assets of
UniMac Company, Inc., a privately held manufacturer of commercial
frontload washers and hydro-extractors.
The company enters into interest rate and foreign currency interest rate
swap agreements with commercial banks to reduce the impact of changes in
interest rates and foreign exchange rates on financing arrangements with
customers and foreign subsidiaries. The company meets its working capital
requirements mainly with variable rate short-term financing. Interest
rate swaps are used to provide purchasers of the company's products with
fixed financing terms over extended time periods. Cross-currency interest
rate swaps have allowed the company's foreign subsidiaries to meet
borrowing needs at lower interest rates compared to local borrowing. The
company also enters into foreign exchange forward contracts to minimize
fluctuations in the value of payments due to international vendors and the
value of foreign currency denominated receipts. The hedges used by the
company are transaction driven and are directly related to a particular
asset, liability or transaction for which a firm commitment is in place.
Swaps and foreign exchange contracts are held to maturity and no exchange
traded or over the counter instruments have been purchased. The impact on
the financial position and results of operations from likely changes in
foreign exchange rates and interest rates is immaterial due to the
minimizing of risk through the hedging of transactions related to specific
assets, liabilities, or commitments.
Recurring costs associated with the company's environmental compliance
program are not material and are expensed as incurred. Capital
expenditures in connection with environmental compliance are immaterial.
The company is involved in various stages of investigation and cleanup
relative to remediation of various sites. All appropriate costs incurred
in connection therewith have been expensed. Due to the complexity of
environmental laws and regulations, the varying costs and effectiveness of
alternative cleanup methods and technologies, the uncertainty of insurance
coverage, and the unresolved extent of the company's responsibility, it is<PAGE>
PAGE 11
not possible to determine the ultimate outcome of these matters. However,
in the opinion of management, any additional liability will not have a
material effect on the company's financial position or results of
operations after giving effect to amounts already recorded.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAYTHEON COMPANY (Registrant)
/s/ Sheldon Rutstein
By: Sheldon Rutstein
Senior Vice President
Chief Financial Officer
November 15, 1994<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000082267
<NAME> RAYTHEON COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-START> JUL-04-1994
<PERIOD-END> OCT-02-1994
<CASH> 248,789
<SECURITIES> 112
<RECEIVABLES> 837,972
<ALLOWANCES> 0
<INVENTORY> 1,627,042
<CURRENT-ASSETS> 4,977,389
<PP&E> 3,720,784
<DEPRECIATION> (2,340,967)
<TOTAL-ASSETS> 7,210,774
<CURRENT-LIABILITIES> 2,863,566
<BONDS> 0
<COMMON> 131,575
0
0
<OTHER-SE> 4,168,067
<TOTAL-LIABILITY-AND-EQUITY> 7,210,774
<SALES> 7,284,097
<TOTAL-REVENUES> 7,284,097
<CGS> 5,621,335
<TOTAL-COSTS> 5,621,335
<OTHER-EXPENSES> 451,196
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,313
<INCOME-PRETAX> 585,413
<INCOME-TAX> 194,274
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 391,139
<EPS-PRIMARY> 2.92
<EPS-DILUTED> 0.00
</TABLE>
